LyondellBasell anticipates double-digit income drop for third quarter 2023

LyondellBasell Industries NV (NYSE: LYB) surpassed analyst estimates for the second quarter as it expects more volatile costs into the third quarter.

The petrochemical refiner earned $715 million in Q2, a 56.2% drop from the year before. Adjusted earnings were $2.44 per share, beating the Zacks Consensus Estimate of $2.29 per share.

LyondellBasell credits improved olefins and polyolefins margins compared to the first quarter of the year.

“Global olefins and polyolefins margins improved modestly during the second quarter driven by lower feedstock costs in both the U.S. and Europe,” the company said in its earnings results. “Oxyfuels margins remained strong, supported by low butane costs and robust demand for fuels. Refining margins declined from first quarter 2023 highs but remained above long-term averages.”

Moving into the third quarter, the company is anticipating further compressed margins in several of its business segments. Uncertainty around the full re-opening of China after the Covid-19 pandemic is also causing buyers to be more cautious.

“In the third quarter, we expect volatile feedstocks costs and new capacity entering the market will compress margins [for olefins and polyolefins in the Americas segment],” Kenneth “Ken” Lane, executive vice president of olefins and polyolefins, said during the company's earnings call. “Also, demand is being impacted by cautious buying by our customers due to the uncertainty economic outlook.”

CEO Peter Vanacker added that the company expects earnings before interest, taxes, depreciation and amortization to drop by a percentage between the mid-teens and mid-twenties for the third quarter compared to Q2.

“In the third quarter, the company expects typical benefits from summer seasonality to be more than offset by soft demand due to ongoing economic uncertainty,” LyondellBasell said in its earnings release. "Stagnant demand, volatile feedstock costs and new capacity in North America and China are challenging petrochemical margins."

The company is optimistic, however, that the high prices of feedstocks will not continue. Lane said natural gas liquids, which are a feedstock for olefins and polyolefins, peaked in the beginning of the third quarter.

“The good news is we've seen NGL prices come down,” Lane said. "That was really peaking in July, but we do see that coming off here in August, but it did have an impact in July. That's not going to continue.

“The inventory levels for NGLs are still very healthy and production is growing. Overall, we expect that that we're going to see the advantages with NGL production here in the U.S., especially with ethane.”

Meanwhile, Vanacker stressed that the company’s plans to exit the refining business have not changed, even though in May LyondellBasell pushed back its closing date for the Houston Ship Channel refinery to the end of 2025 instead of the end of 2023.

The Netherlands-based LyondellBasell has its operational headquarters in Houston. The company recently signed a 318,504-square-foot lease in Williams Tower in the Galleria area, where it will move its U.S. headquarters in late 2024 or early 2025. LyondellBasell is No. 6 on the Houston Business Journal's 2023 Largest Houston-Area Public Companies List, based on 2022 revenue.